Navigating the Middle East: An Opportunity-Laden Oasis

The World. Dubailand. The Palm Trilogy. These and many more other billion-dollar projects are all helping construct the new face of the Middle East. In turn, hundreds of billions of dollars have been poured into the region every year for further development. The result? Security people are in for a treat!

In terms of construction value, the governments of the GCC (Gulf Cooperation Council, consisting of the kingdoms of Bahrain and Saudi Arabia, the sultanate of Oman, the emirates of Kuwait and Qatar, and the United Arab Emirates) countries are injecting more than US$1 trillion per year for infrastructural development. In 2007, total security spending (including guarding services, but excluding installation fees) by 13 Middle Eastern countries, including the GCC, was valued at $1.2 billion, according to Roger Ghostine, Regional Business Development Manager, Harco Group Middle East and Africa.

¨Security electronics accounted for roughly 60 percent of this amount  $720 million,〃 said Ghostine, ¨and approximately 35 to 45 percent of the systems purchased were IP-based, a concept brought into this region just four years ago.〃 Similar market size was echoed by Bosch: ¨Overall revenue from security equipment sales in the GCC countries plus Yemen is forecasted to reach $520 million in 2008; as for the entire Middle East, the number well exceeds $740 million,〃 said Andries Nouwens, Export Marketing Manager for Bosch Security Systems. Top three countries are identified as the UAE (United Arab Emirates), Saudi Arabia and Qatar.

Just how lucrative is the security business in the Middle East? This report gives the reader an overview of how security system providers can bank on the numerous opportunities in the Persian Gulf.

Market Overview

When all the first-tier players are operating right from their own local offices and not through agents or partners, it is a fairly clear indication of booming economy prosperity of this region. ¨With significant growth in many industries in the Middle East in recent years, expanding our operations in the region is a natural and important step for us,〃 said Ron Krisanda, President of the Europe, Middle East and Africa region for Tyco Fire & Security. ¨Although new to the market in this part of the world, ADT will be drawing on its global expertise and the heritage of Tyco Fire & Security in the region, which includes work on projects such as the Emirates Palace, The Palm tunnel and the National Bank of Dubai.〃

Top three markets in the region for Tyco security products are Saudi Arabia ($8 to $10 million), the UAE ($4 to $5 million) and Kuwait ($2 to $3 million), said Amr Mutawea, Regional Manager, EMEA Access Control and Video Systems, Tyco International. ¨In the UAE, more than 50 percent of the projects go directly for high-end systems, such as Tyco, Honeywell, Pelco, GE and Bosch.〃

Honeywell was a bit conservative when asked about market figures: ¨It was estimated that security equipment sales generated by the 21 countries in the Middle East and North Africa (MENA) region were at least $500 million in 2007, with 65 percent of these from surveillance systems,〃 said Michael Flink, General Manager, Honeywell Security Middle East. ¨The nature of business in this region is that everything is done in volume  if youˇre contracted by a fast food chain, you're going to have to provide systems for all its 500 shops.〃

In the Middle East, high-end ¨branded〃 sectors, such as traffic and tourism-related infrastructure, are growing at 30 percent plus per year, said Anant Berde, Regional Manager of Pelco Middle East. ¨Average annual sales of high-end video products are approximately $200 million.〃 Countries of focus for Pelco are the UAE, Saudi Arabia, Kuwait, Qatar and Oman. Take Qatar. Its oil-producing capacity is only second to Saudi Arabia, and the revenue generated is mostly earmarked for developing other sectors.

For Axis Communications, the Middle East  together with Europe and Africa  accounted for 45 percent of its global sales in 2006. ¨People in the Middle East are keen to new technology, and for Axis, the region is one of the emerging markets with the highest growth rate worldwide, surpassing 40 percent annually,〃 said Gilles Ortega, Regional Manager, Axis Communications Middle East and North Africa. For example, it is not unusual to get a large project (200 to 300 cameras) on a daily basis. Axis Communication is currently operating in 22 countries in the region; among these include Bahrain, Iraq, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, the UAE, Egypt, Yemen and Libya.

Channel Strategies & Partners

Promising verticals in the UAE, in Ortegaˇs opinion, include transportation, real estate, retail, hospitality and large corporations. They apply to the rest of the region as well, with petrochemical and education also coming into play. ¨A major challenge for international players, however, is to find, educate and retain good partners,〃 Ortega cautioned.

While users in the Middle East are quite well-educated when it comes to technology, awareness levels are relatively low in terms of security, said Niek Bragt, Managing Director of Nedap Middle East. ¨This means people want the latest technology, but they donˇt know what their security needs truly are.〃 So, instead of ¨hard selling,〃 the company is increasing its local presence to fortify its channel structure and help users make smart purchase decisions. Simon OˇNeill, International Sales Manager, AMG Systems Middle East, voiced the same observation: ¨People here have very high technology awareness, but security is another story. My job for the next 12 months is to educate end users so they understand the latest technology doesnˇt necessarily mean the highest level of security and reliability.〃

As there are innumerable projects sprouting in the region, the No. 1 priority for security companies, in Bragtˇs opinion, is to focus on the right vertical markets and system integrators who specialize in them. RCG, a biometrics firm, has chosen a similar path on its business development roadmap: ¨There is no magic bullet for business expansion  you have to be here yourself to serve your potential customers so they feel comfortable buying from you,〃 said Danny Chew, Regional Director of RCG Middle East.

Business prospects for security players can also be seen in verticals like finance (including insurance firms), petrochemical, multinational corporations and government. ¨Some ongoing projects include major banking corporations in Saudi Arabia, Kuwait and the UAE, and large residential development projects in Dubai,〃 said Bragt.

On the channel front, Bragt continued, ¨we are sub-managing the real influencers who know the right people at the right places so that our solutions can be utilized in the most suitable projects or installations.〃 Over the last two to three years, Nedap has witnessed 20 to 30 percent annual growth in this region, and the pace will only quicken.

Honeywell's partners are appointed on a country-by-country basis, and the company does not offer exclusivity to them, said Flink. ¨Major ones, to name a few, in Dubai, Qatar, Jordan and Kuwait include Citytec/EmirTec, BNTS, JBK, VJ, Ideal, Oriental and Security Arms; other key growth countries for Honeywell are Saudi Arabia and Egypt.〃

Consultants are key decisionmakers, continued Flink, when it comes to purchasing security systems in the UAE, especially in Dubai. ¨Even though money is not an issue due to oil wealth, users still expect the biggest bang for their buck, and they understand product specifications and performance well.〃 The view was seconded by Nouwens of Bosch: ¨People here want the best technology, but theyˇ re not going to throw their money away.〃

Magesh Srinivasan, Marketing Manager for Sony Professional Solutions Middle East, placed the same importance on consultants: ¨Business is highly relationshipbased, and consultants from architect and construction firms are the go-to guys for bidders.〃 In the UAE alone, said Srinivasan, active construction sites exceed 4,700, and hot vertical segments include government, retail, petrochemical, education, healthcare and banking.

Key areas for Sony are city surveillance and corporate accounts. Local audio-visual and IT system integrators, continued Srinivasan, are becoming more specialized, bringing forward customized turnkey solutions. This notion was seconded by Ghostine of Harco: ¨We only work with preferred system integrators who specialize in specific technology in specific verticals and territories.〃

In the UAE, multinational system integrators like Johnson Controls, Siemens and Honeywell Building Solutions are often the winners of big projects (more than 250 cameras per site). Local ones, to name a few, include Zahra, First Security Group, TechnoStream, United Links, Digital Skys, Digital Valley and Techniq International. ¨In Dubai, the bureau of civil defense (police) is the government body that issues security certificates to commercial establishments after they pass site inspections, which can only be conducted by one of the three consultants in the entire emirate,〃 said Chetan Sathaye, Area Manager, Pelco UAE. Such certificates are essential (regulated by a royal decree) to license renewals.

Other key players are the system integrators and contractors who are connected to the various ruling families in the region. Key system integrators in Saudi Arabia include SecuTronic, Abudulla Fouad, Alesayi Electronics, Mashail al Khaleej, Nasco and Jamal Jaroudi, suggested Berde of Pelco. ¨In Kuwait, Universal and Group 4 Securicor are well known.〃 Mustafa Sultan Security & Communication Systems is quite active in Oman.